The Big Bank Theory: Why Mergers Will Always Be Big News

Last week's announcement where RBC agreed to buy HSBC Canada for $13.5 billion in cash brought back a flood of memories to my years as a financial-services reporter.

I began covering Canada's banks and insurance companies for Bloomberg News towards the end of 2001. Less than a year into the gig, rumors emerged that Bank of Nova Scotia and Bank of Montreal were in talks to combine, which became headline news for several reasons. Not only would that have created the country's largest financial institution, but as far as anyone knew... Canadian banks weren't even allowed to merge.

Rewind to 1998, when Royal Bank of Canada and BMO formally announced merger plans, followed by a proposed tie-up between Toronto-Dominion Bank and Canadian Imperial Bank of Commerce. While I wasn't a beat reporter yet, I followed the saga closely through the news. Canada's Competition Bureau advised that combining five big banks into three may not be of benefit to the consumer and weren't in the "public interest." By year's end, Finance Minister Paul Martin ruled that the two mergers weren't allowed to proceed.

In the years following, there was a lot of discussion about whether banks should be allowed to combine and as a reporter, it was always of interest and usually front page news material. Not only because of the oligopolistic nature of Canada's banking system, but because this affected virtually every Canadian - employees, customers, investors and so on.

I remember traveling to Ottawa in the fall of 2002 to watch bank CEOs present their cases to members of the Senate for why mergers should be allowed. During an entire day, I heard presentations from John Hunkin, Gord Nixon, Peter Godsoe and other leaders, and remember thinking how their arguments were unlikely to sway the government.

The Senate Committee broke for dinner and resumed around 7 or 8 pm. The last speaker of the day was TD Bank CEO Ed Clark. Clark -- who would become my all-time favorite executive to interview over the years, due to his intelligence, quick wit and transparency -- was a former civil servant who knew exactly how to speak to this audience. Instead of playing up the virtues of a bank merger, he gave advice to the Senate on what information they needed to gather to make an informed decision.

I distinctly remember leaving the procedures that night (I may have been the only reporter left at that hour) and getting on an elevator with a handful of senators. One of them gushed over Clark's remarks, saying "He speaks like one of us!"

Despite this, the Canadian government remained steady on its stance around bank mergers, which was more or less "Thanks, no." Admittedly, this was one of many factors that made predictable, overly-cautious Canada the envy of the world during the Global Financial Crisis. So instead of merging with each other, the banks set out on separate journeys to acquire large but not "transformational" companies that could either build on their existing foothold or help them expand into different geographies.

Over the next few years, RBC would try to bolster its retail banking presence in the U.S., as would TD and BMO. Scotiabank focused largely on growth in Latin America, much of which was done through acquisition.

One such transaction that stands out for me (and actually has some similarities to last week's RBC transaction) was announced August 29, 2012. I remember that date well because I almost missed covering it.

Earlier that day, my girlfriend (now wife) asked if I could pick up an item for her downtown. It was a 20-minute subway ride away from my office and I was happy to make the trek. She called the store and was told that after a short break, they would be re-opening at 3 pm. I arrived at the storefront at 3 and a portable sign on the door said they "WILL RETURN" at 3, yet there were no signs of life instead the store.

I waited for a long while, watching the time pass from 3 to 3:30 and then 3:45 - no one there. I called the store several times and got no response; not even a voicemail. At 4 pm, my Blackberry began exploding with emails, announcing that Scotiabank had agreed to acquire ING Bank of Canada (today known as Tangerine) for $3.1 billion.

I knew that I needed to cover this important story. Transactions like these are a huge tie-up for mergerless Canada, and they certainly don't grow on trees. There was a press conference happening in half an hour and I immediately decided I wanted to be the one there asking questions and filing the report. So I left the storefront, but not before taking a souvenir out of frustration.

It was not in the public interest that I let that store sign remain.

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